The Reason Financial Investment Platform Robinhood Halted the Ability to Trade GameStop Stock in 2021

On January 28, 2021, soon after the opening bell, Robinhood and several other major trading platforms announced the suspension of the ability to purchase GameStop stock, delivering a devastating blow to the WallStreetBets subreddit community which had been helping to elevate the stocks price point by locking out new investors and causing the stock price to tumble dramatically. The rationale for this decision was that extreme volatility could create unforeseen economic problems in the future (e.g. unsustainable economic bubble etc.) but many retail investors viewed this outcome as professional investors leveraging their authority with the U.S. government and the financial industry to stop the public from continuing to financially annihilate large, established trading firms. In addition to the official reason provided, retail trading platforms are not designed to handle the torrent of transactions related to events like the ascendancy of GameStop which played a factor in why Robinhood and other platforms succame to the pressure to halt all future trading of GameStop stock. Robinhood claimed that the company did not have the liquidity on hand to cover the trades and gains being made. Unsurprisingly, the price of GameStop stock rapidly declined, devastating retail investors and highlighting the fact that the investment market is rigged toward the wealthy and powerful perhaps having a distinct advantage over their counterparts. Experts argue that this intervention unnaturally drove the price point of GameStop stock down, acting to reverse the effects of community based organization and investment. It was the clearing houses however that truly forced Robinhood and other trading platforms into capitulating. When a stock is purchased or sold, the transaction does not settle and finalize until 2 business days after the transaction time stamp, something which is unbeknownst to many investors. During this 2 business day period, due to regulation, brokerages and clearing firms are not permitted to use customer capital to fund the collateral use of those 2 business days, therefore being legally required to leverage the firms own capital. Robinhood argued that it did not possess the corporate capital required to facilitate the enormous volume of GameStop stock trades. It should be noted, Robinhood has repeatedly denied that it was under pressure from hedge fund executives, financial organizations, and the professional financial industry as a whole to stop the short squeeze occurring for those who chose to short sell GameStop stock